Inzinerine Ekonomika-Engineering Economics, 2018, 29(2), 176–187

Measurement of Impact of Selected Industrial Engineering Practices on Companies’

Economic Performance

Rastislav Rajnoha1, Katerina Galova2, Zoltan Rozsa3

1
Рan-European University
Tomasikova 20, SK-821 02 Bratislava, Slovak Republic
E-mail. rastislav.rajnoha@paneurouni.com
2
Tomas Bata University in Zlin
nam. T. G. Masaryka 5555, CZ-76001, Zlin, Czech Republic
E-mail. kgalova@utb.cz
3
School of Economics and Management in Public Administration in Bratislava
Furdekova 16, 851 04 Bratislava 5, Slovak Republic
E-mail. zoltan.rozsa@vsemvs.sk

http://dx.doi.org/10.5755/j01.ee.29.2.19871

Industrial engineering (IE) represents a significant tool how to eliminate waste in both manufacturing and other areas of
the enterprise. This helps reduce costs, increase production effectiveness and other characteristics, which can lead to
better competitiveness and performance. Finding IE methods that have significant impact on overall business performance
is the main purpose of this paper. Another objective was to determine whether the impact of industrial engineering
methods applies to all industries in the Czech Republic or whether it applies only to selected industries. The data was
obtained through an online questionnaire survey, the survey focused on a wide range of manufacturing companies
(N=235) from different industries, different sizes and ages. For comparing the overall business performance among
individual respondents, a ROE 1 (Return on Equity) indicator was selected. To measure this indicator from the impact of
the tax, investment and credit policy, a modified ROE indicator (ROE 2 calculated first with EBITDA - Earnings before
Interest, Taxes, Depreciation and Amortization and then ROE 3 calculated with EBIT - Earnings before Interest and
Taxes) was used. The results show that the use of IE methods in manufacturing plants is limited to a few selected methods.
Similarly, only a few industrial engineering methods are typically used in high performance firms and can therefore be
said to be involved in increasing performance. The statistically significant relationship between specific IE method and the
higher performance measured by ROE 1 or ROE 2 was observed only for standardization, 5S, JIT, APS and six sigma.
Presented research also shows that this influence of methods does not apply to individual IE methods globally in all the
sectors studied, but only in some of them.
Keywords: Industrial Engineering; Economic Performance; Lean Production; Lean Six Sigma; Standardization, 5S, JIT.

Introduction environment (processes, technology, quality, innovations,

organizational aspects, social factors, sustainability etc.)
Industrial engineering (IE) and the related concept of (Tizroo et al., 2017; Sharma et al., 2015; Muhammad et
lean is a tool that has spread during years almost all over the al., 2017; Yoo & Seo, 2017; Rajnoha & Lesnikova, 2016;
world, both in manufacturing companies and in service Monni et al., 2017; Krause, 2017; Kocmanova et al., 2017;
companies or healthcare sector (Radnor et al., 2012; Koraus et al., 2017; Afonina, 2015; Virglerova et al.,
Rajnoha & Chromjakova, 2009; Piercy & Rich, 2009; 2016; Urban & Joubert, 2017; Kozubikova et al., 2015).
Suarez-Barraza et al., 2012; Stefko et al., 2016). For our The investments in introducing lean return several
research and for the needs of literary research, we focused times in the form of cost reductions, increased labor
on the lean concept, lean six sigma. These two concepts then productivity, shorter delivery times or higher quality
cover all the specific IE tools that were part of our research. (Al Smadi, 2009; Ginevicius et al., 2015). Although the
A relatively large number of case studies deal with the relationship between lean production and the production
contribution of the individual lean methods, especially in performance of the company was studied (Cua et al.,
reducing production and related costs and improvements in 2001), and higher performance should lead to higher
shop floors (Sjoberg et al., 2012; Jaca et al., 2014; economic performance (the most commonly measured by
Ablanedo-Rosas et al., 2010; Singh et al., 2013; Tucek et financial indicators), this relationship was not sufficiently
al., 2013). Further studies address the implementation of confirmed (Losonci & Demeter, 2013).
the lean as a concept and include both the external The empirical results of the relationship between
environment (supply chains, strategic partnerships with overall business performance and IE methods, and hence
suppliers and customer interaction) and the internal lean, are very indefinite (Losonci & Demeter, 2013). It is

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 Rastislav Rajnoha, Katerina Galova, Zoltan Rozsa. Measurement of Impact of Selected Industrial Engineering Practices…
possible to search for studies that have confirmed this Application of lean is not a one-time project; it is a
relationship (Fullerton & Wempe, 2009) but there are also long-term effort to change the organization. There are four
studies that have not confirmed a statistically significant basic phases of lean implementation, which firms pass
relationship (Ahmad et al., 2004; Losonci & Demeter, 2013). through: cells and assembly lines, shop-floor, value stream
These and also other studies operate with a lean concept and and value systems (Hines et al., 2004).
do not focus on the relationship between individual IE The extent of use of IE methods and tools has already
methods and economic performance (Tucek et al., 2017). been the subject of earlier research. For example, in his
Some studies focus only on some selected lean research, Bhasin (2012) also identified the most used IE
instruments. However, lean instruments are selected at methods in a given sample of respondents - it was TPM
random and in most cases different authors focus on the same (Total Productive Maintenance), attacking value and seven
methods, e.g. JIT (Just in Time), or Total Quality wastes, process mapping, 5S and visual management,
Management – TQM (Mackelprang & Nair, 2008; Brah & kaizen and continuous improvement. Similar research is
Chong, 2004). These studies are either focused on production presented by Glass et al. (2016). This research was held in
performance or their conclusions are inconsistent. Germany, Switzerland and Austria and the main emphasis
The main purpose of this paper is to determine whether was the identification of differences in the implementation
some of the IE methods affect overall business performance of individual IE methods among the industry. The 2011
measured by the ROE (Return on Equity) indicator and study (Eswaramoorthi et al., 2011) identified the status of
quantify this impact. Our previous research has shown that lean methods in the Indian machine tool industry – most
IE methods are not implemented globally in all industries of common methods in this case were e.g. cross-functional
the national economy without exception. teams, work standardization, 5S, Poka yoke or cell layout.
Our research provides a further insight into this issue. Another study was conducted between US and UK
What methods of IE are the most common among Czech businesses, highlighting the need for a thorough analysis of
firms? Do some IE methods affect the ROE indicator? the current value streams in firms and a detailed
Which methods are applied by more efficient firms? Our preparation of the future shape of these value flows.
research answers these basic questions in the following IE methods can be implementing unsystematically in
sections. random order, and their selection is often random in
enterprises. However, their systematic deployment can
Literature Review bring much better results - it is often useful to implement
them together. Typical example of this are TQM (Total
Business performance and market positioning are key quality management), TPM and JIT (Just-in-Time). These
concepts for today's businesses (Yoo & Seo, 2017). Any methods together form a comprehensive and consistent set
competitive advantage that firms can get is very valuable, of production methods aimed at improved performance.
and firms are looking for ways to reach them (Koraus et al., TPM has a positive and significant direct relationship to
2015; Soltes & Gavurova, 2015; Virglerova et al., 2017; performance as well as an indirect relationship through the
Batchimeg, 2017; Belas et al., 2017). One of the possible JIT method with low cost, high level of quality and
ways how to increase productivity, change a corporate compliance with delivery times. In practice, it is very
culture or cleaning up shop floors, reduce cycle time and common that these three methods are implemented at the
improve value for customers is lean or in the case of same time. Cua et al. (2001) define two sets of activities
reducing waste and rework six sigma (Naslund, 2008). related to the implementation and use of these three
Lean contains a set of tools to help firms identify the methods - the first group is common to all three methods
direction of improvement, so it is not tools that can be (vision, strategic planning, interdisciplinary training and
deployed at anytime, anywhere (Holweg, 2007). For the employee involvement). These activities provide support
successful implementation of lean, each tool or method mechanisms for implementing discussed EI methods. Unlike
needs to be adapted to the specific business conditions these common activities, each method is characterized by
(Furlan et al., 2011). In the beginnings, the lean methods unique practices that are more technically or process-oriented.
were primarily used in the shop floors and had an impact These specific practices represent the basic techniques of each
only on local performance without a clear impact on overall method. (Cua et al., 2001) The simultaneous implementation
system performance (Holweg & Pil, 2001). However, lean of JIT, TPM and TQM could lead to better business
and IE does not just mean focusing on improving the performance. The simultaneous implementation of these
performance of the shop floor. The basic purpose of the lean methods is also profitable in view of the same supportive
should be seen in increasing value for the customer by activities that are needed for successful implementation, such
improving the product or service and eliminating waste as 5S, Kaizen, visualization.
(Shah & Ward, 2007; Simpson & Power, 2005). Andersson et al. (2006) defined the basic differences
The main purpose of lean is to eliminate waste at every and similarities between TQM, lean (and the six sigma
level and maximize the value for customer (Bhim et al., methodology). E.g. while lean and six sigma are primarily
2010). To maximize the advantage of lean implementing, it aimed at improving through projects, TQM highlights the
is necessary to focus not only on its internal implementation commitment and engagement of all employees. All three
but also on the implementation throughout the entire value approaches are focused on processes (Andersson et al.,
chain (Bhasin, 2012). According to Lewis (2000), a critical 2006). The relationship of lean – six sigma – TQM has
issue seems to be the inability to appropriate the added value been the subject of further research (Dahlgaard-Park &
achieved through the implementation of IE methods and Dahlgaar, 2006).
savings brings by their usage.

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 Inzinerine Ekonomika-Engineering Economics, 2018, 29(2), 176–187

Similar findings are reported by other study (Naslund, We present a summary table (Table 1), which
2008) in which the relationship between TQM, JIT and lean summarizes the knowledge in the field of IE method
was discussed. According to this study, lean and six sigma research and company performance measured by different
basically share the same fundamental approach to change performance indicators. For comparison, we chose the
and improvement as JIT and TQM and the main ideas of JIT most commonly used IE methods - the lean concept (the
and lean do not differ from the main ideas of TQM. degree of implementation of which is most often described
The impact of IE and lean on company performance by the self-assessment by the firm), JIT, TOC (Theory of
(measured most often by financial indicators) has also been constraints) and TQM. We have not selected country
the subject of recent research. However, the results of these studies or a specific focus. Presented studies are sorted by
studies are inconsistent. For example, Fullerton & Wempe year of publication and a brief description of the main
(2009) found the positive and direct effect of lean on findings is given.
financial performance measured primarily by ROS (return Based on the objective of this article and based on the
on sales) indicator. Similar results were also presented in the study of the available professional resources, we selected
2011 study – lean demonstrates positive impact on financial 25 IE methods in our research and we focused on finding
performance measured by the ROS and ROA (return on and describing their impact on the overall performance of
assets) indicators (Yang, et al., 2011). On the other hand, enterprises represented by the ROE (return on equity)
Jayaram et al. (2008) concluded that lean does not affect indicator.
financial performance measured by ROA indicator.
Table 1
Overview of Relationship between IE Methods and Business Performance
IE Link to performance
Authors Country Research conclusions
method indicator
Manufacturing
Cua, McKone, Schroeder TQM, Cross-country Higher level of manufacturing performance can be achieved
performance, unit cost
(2001) JIT, TPM sample by simultaneous implementing of TQM, JIT and TPM.
of manufacturing
Several indicators for
Huarng, Chen (2002) TQM cost reduction and Taiwan TQM positively influence business performance.
business performance
Sales level, market Firms using TOC can achieve significantly higher
Sale, Inman (2003) TOC, JIT share, operating US performance than firms using only JIT or traditional
profits, ROI … manufacturing.
Jayaram, Vickery, Droge North There was no positive or negative relationship between
LEAN ROI, ROS, ROA
(2008) America LEAN and the firm’s financial performance.
Fullerton, Wempe (2009) LEAN ROS US Positive affect of LEAN on financial performance.
Cross-country LEAN improves productivity and reduces the asset base
Yang, Hong, Modi (2011) LEAN ROA, ROS
sample which causes improvement of financial performance.
Nawanir, Teong, Ohman
LEAN Profitability, Sales Indonesia LEAN positively associate with business performance.
(2012)
Unit cost of
Danese, Romano, Bortolotti manufacturing, Cross-country
JIT JIT positively affect efficiency.
(2012) inventory turnover, sample
cycle time
Sales, market ratio Cross-country There are no obvious financial benefits in the group of
Losonci, Demeter (2013) LEAN
ROS, ROI sample LEAN producers.
Effect of LEAN on organizational performance was
Internal Market share, ROI,
Chavez, Yu, Jacobs, Fynes, Republic of inconclusive. LEAN practices enable improvement in
LEAN growth of market
Wiengarten, Lecuna (2014) Ireland performance only in case of low levels of technological
practices share, growth of ROI
turbulence environments.
Khanchanapong, Prajogo,
Sohal, Cooper, Yeung, Cheng LEAN Manufacturing cost Thailand Cost performance is positively affected by LEAN.
(2014)

Objectives, Data and Methodology achieve the research objectives the following research
hypothesis were defined:
The main purpose of our study is to examine the extent H1: We assume that firms implementing specific IE
to which firms use individual IE methods and to find out if methods achieve significantly higher overall performance
some of the methods affect the economic performance measured by the ROE indicator.
measured by the ROE indicator. H2: We assume that the hypothesis H1 apply in all
The impact of lean concept on performance has been industries. We claim that the positive impact of specific IE
the subject of several studies. However, individual studies methods on performance applies in all industries.
are inconsistent in claiming that the lean concept has Data about the primary database of random selected
positive impact on the overall efficiency of the firm. enterprises from different industries we obtain by extensive
Furthermore, there is no study of how the individual IE online survey. We searched for firms on online publicly
methods and, therefore, the lean concept affects the available databases and on corporate websites if they were
economic performance of the firm measured by ROE. To available to them. The questionnaire was distributed in two

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 Rastislav Rajnoha, Katerina Galova, Zoltan Rozsa. Measurement of Impact of Selected Industrial Engineering Practices…
rounds and we obtained data (correctly filled out Although the detailed distribution of respondents
questionnaires) from a total of 235 firms. We consider the size according to the ROE indicators on the six-degree scale
of the research sample as being sufficiently representative. would allowed us for more detailed statistical analyzes, we
A part of the questionnaire was a list of twenty-five narrowed down the number of categories for all ROE
methods and tools of IE. The most common names of the indicators. The main reason for the reduction of categories
IE methods were used in the list of methods offered (some was the low numbers in the individual pivot tables for the
of which we assumed to be less well known or which are performed statistical tests and failure to meet the minimum
often part of corporate expertise under a different name values for all Pivot Tables cells.
were briefly explained). In the list of offered IE methods,
both groups of the methods have been applied – local Research Results
methods (e.g. visualization, 5S, etc.), as well as the
methods that affect firms as a whole – global methods (e.g. The total number of respondents who participated in
TQM concepts or JIT philosophy). our research was 235. This sample included firms from the
For the statistical evaluation of the relationship whole regions of the Czech Republic, from different
between the selected variables was used Pearson’s Chi- sectors of the national economy, different ages, different
square Independence Test. This test is used to find out how forms of business, capital structure and size (in the terms
likely it is that the observed frequencies distribution is due of numbers of employees). From the perspective of the
to chance. This test compares the consistency of observed industries was in the sample most frequently represented
distribution of data with expected distribution data in the mechanical engineering (51 firms – 21,70 %), construction
case of independent variable categories. Pearson’s Chi- (37 firms – 15,74 %), electrotechnical (27 – 11,49 %),
square test defines two basic hypothesis which are being wood processing industry (20 firms – 8,51 %) and
tested during the analysis. Hypothesis H0 assumes that the automotive industry (20 firms – 8,51 %).
relative distribution of first variable are independent of the
second variable. For our purposes, zero and alternative The Extent of Use IE Methods in Czech Republic
statistical analysis are defined as follows:
H0: There is no statistical significant correlation The extent of use of the various methods of IE is given
between tested IE methods and the ROE indicator. in the Table 3. This analysis was performed for all
H1: There is statistical significant correlation between respondents who participated in our research.
tested IE methods and the ROE indicator. Table 3
The p-value is used to accept or reject the zero Frequency of Use of IE Methods – All Industries
hypothesis. The level of significance, which is necessary
Is Is used - Is not Is not used -
for comparison with the p-value, was set as α = 0,05. used percentage used percentage
We are aware that ROE is not the most appropriate Standardization 104 44.26% 131 55.74%
indicator. More appropriate indicator would be the Kaizen 78 33.19% 157 66.81%
EVA (economic value added) indicator (which we consider MRP I 76 32.34% 159 67.66%
to be unrealistic for the survey). For this reason, we have 5S 75 31.91% 160 68.09%
Visualization 72 30.64% 163 69.36%
decided to use another two indicators - modified ROE, that
MRP II 71 30.21% 164 69.79%
were calculated not with EAT (earning after taxes), but TQM 56 23.83% 179 76.17%
with EBITDA – earnings before interest, taxes, Poka-yoke 53 22.55% 182 77.45%
depreciation and amortization (ROE 2), and EBIT – JIT 52 22.13% 183 77.87%
earnings before interest and taxes (ROE 3). The impact of Kanban 52 22.13% 183 77.87%
investment policy, tax policy was eliminated for ROE 3 TPM 49 20.85% 186 79.15%
6 sigma 48 20.43% 187 79.57%
and even the impact of depreciation and amortization were QFD 46 19.57% 189 80.43%
eliminated for the ROE 2 indicator. Respondents could SMED 38 16.17% 197 83.83%
choose from a six-degree scale for all three indicators. APS 30 12.77% 205 87.23%
These six categories were merged into only three groups - TOC 29 12.34% 206 87.66%
inefficient firms, firms with average performance, high- MOST 28 11.91% 207 88.09%
OPF 22 9.36% 213 90.64%
performance firms. Modification of ROE categories from DMAIC 22 9.36% 213 90.64%
six to three categories is shown in the Table 2. VSM 20 8.51% 215 91.49%
Table 2 Andon 17 7.23% 218 92.77%
The ROE Indicator Jidoka 17 7.23% 218 92.77%
ROE value Selected group Heijunka 16 6.81% 219 93.19%
ROE 1 Hoshin kanri 15 6.38% 220 93.62%
< 0%, 0 – 2% Inefficient firms DBR 14 5.96% 221 94.04%
2 – 4%, 4 – 6%, 6 – 8% Firms with average performance BPR 0 0.00% 235 100.00%
8 – 10%, > 10% High-performance firms
ROE 2 The most commonly used IE method is standardization
< 0%, 0 – 10% Inefficient firms (is used by 40 % of all respondents). The high frequency of
10 – 20%, 20 – 30%, 30 – 40% Firms with average performance use of this tool is mainly related to the universality of its
40 – 50%, > 50% High-performance firms use. Firms use standards in almost every of their activities.
ROE 3 Frequency of use of the other most common IE methods
< 0%, 0 – 4% Inefficient firms
4 – 8%, 8 – 12%, 12 – 16% Firms with average performance differs substantially from the standardization frequency.
16 – 20%, > 20% High-performance firms

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 Inzinerine Ekonomika-Engineering Economics, 2018, 29(2), 176–187

As we can see in the Table 3, the second to sixth most Table 5

frequently used methods are very similar and differ only
EI Methods x ROE 1 – Residues (All Industries)
slightly. A relatively large jump between the sixth and
seventh method is again followed by very small Low Average High
performance performance performance
differences. This can be explained by the similarity of <0% - 2 % 2–8 % Over 8 %
individual methods. The first group of methods (primarily STANDARDIZATION
visualization, 5S and kaizen) are methods that are rather is used -5.1 -4.2 9.3
local and relatively simple to implement. The frequency of is not used 5.1 4.2 -9.3
implementation of the MRP I and MRP II methods can 5S
is used -8.7 5.3 3.4
then be explained by the relatively long time that this is not used 8.7 -5.3 -3.4
method is used in the conditions of the Czech Republic JIT
(hence had enough time to expand in the firms). is used -7.0 -3.6 10.6
In contrast, the second set of methods (JIT, kanban, is not used 7.0 3.6 -10.6
TQM) are methods much more challenging to implement. APS
is used 0.3 -5.9 5.6
Also, their impact is not local but rather global in is not used -0.3 5.9 -5.6
the enterprise. Primarily, JIT and TQM are mostly
philosophies, where corporate culture is also important, and Standardization has a significant effect on the value of
it is necessary that all the employees follow these concepts. the ROE 1 indicator (Table 4). As can be seen in Table 5
the residue levels indicate, that standardization is typically
IE Methods and Business Performance used in the firms with higher level of ROE 1 indicator. The
results suggest that the implementation of standardization
For all surveyed IE methods, we analyzed their impact has a positive impact on business performance measured
on the ROE 1, ROE 2 and ROE 3 indicator by Pearson's by the ROE 1. The residue levels show that the firms that
Chi-square test. The basic results of this test for the ROE 1 do not use standardization reach lower ROE 1 values -
and IE methods are listed in the following table (Table 4). these are inefficient firms (negative ROE 1 to 2 %) or
Table 4 medium-performance firms (ROE 1 2–8 %). The use of
standardization is typical for high performance firms
IE Methods x ROE 1 – Statistics (All Industries) (ROE 1 over 8 %).
Asymptotic Research results (H0 is Clear impact on the size of ROE 1 can be also seen in
IE method Value
Significance confirmed/rejected) the case of 5S method (Table 4). At the level of
Standardization 6.988 .030 Rejected significance α = 0.05, considering the residual values
5S 7.237 .027 Rejected
(Table 5), can be stated that 5S is used in more efficient
JIT 13.891 .001 Rejected
APS 7.085 .029 Rejected firms. Firms using this method achieve average (2–8 %) or
high (over 8 %) ROE 1 ratios. By contrast, negative
Due to the low frequencies, one of the basic conditions residual values at lower ROE 1 indicate that the use of this
of the Chi-square test (maximum of 20 % of theoretical method is not typical for inefficient firms with negative or
frequencies may be less than 5) was not met for last three very low values of ROE 1.
methods from Table 3 (Hoshin kanri, DBR and BPR). The impact on economic performance measured by the
Therefore, these methods were not part of further analysis. ROE 1 indicator is also statistically significant for the JIT
According to Table 4, at the level of significance method. Even with this method, it can be stated that its
α = 0.05, the zero hypotheses of independence H0 for implementation has a positive effect on the size of the
standardization, 5S, JIT and APS were rejected. ROE indicator. Firms using this method achieve higher
The relationship between these methods and the size of efficiencies - they achieve higher ROE values (typically
ROE 1 indicator is strong statistically significant. For all over 8 %). On the other hand, firms that do not use this
other methods, the p-value is greater than the level of method are less efficient and achieve lower ROE values
significance and the zero hypothesis of independence was (less than 8 % or even negative).
accepted. Consequently, it can be stated that there is no According to Table 4 we can conclude that also the
statistically significant relationship between these methods APS affects overall business performance. According
and the size of the ROE 1 indicator. the residues is evident that firms using this method achieve
For the first group of IE methods (with significant a better performance measured by the ROE 1 indicator. For
statistically influence on the size of ROE 1 indicator – the firms using APS are typical values higher than 8 %. It
standardization, 5S, JIT and APS) more detailed statistical can be stated that this method is typically used by high-
analysis was carried out. The observed and expected values performance firms that achieve ROE 1 values 8 % or
were compared, and the individual residues calculated higher.
(Table 5). As can be seen from the previous text, IE methods that
have a statistically significant effect on ROE 1
(standardization, 5S, JIT and APS) are typically used in
more efficient firms. On the other hand, the use of these
methods in inefficient firms is not typical.
An identical statistical evaluation of dependence was
also made with the modified ROE 2 indicator (calculated

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 Rastislav Rajnoha, Katerina Galova, Zoltan Rozsa. Measurement of Impact of Selected Industrial Engineering Practices…
with EBITDA) and ROE 3 (calculated with EBIT). The The statistical analysis of the influence of selected IE
test results are listed in the following tables. methods and two levels of ROE (ROE 1 calculated with
The second indicator – modified ROE indicator EAT, ROE 2 calculated from EBITDA) was described in the
(ROE 2 counted with EBITDA) showed similar results as previous text. The results showed that for these two
the statistical tests for ROE 1 indicator. According to indicators are the minimum differences between the
Table 6, at the level of significance α = 0.05, the zero methods that have a statistical effect on the performance of
hypotheses of independence H0 for standardization, 5S, JIT the firm. For both ROE indicators, dependency for four
and six sigma were rejected. The relationship between methods has been detected. Three of these are identical for
these methods and the size of ROE 2 indicator is strong both indicators (standardization, 5S, JIT). Modified ROE 2
statistically significant. and ROE 3 indicators were used primarily to eliminate the
For all other EI methods, the p-value is greater than impact of tax, credit and investment policies on overall
the level of significance and the zero hypothesis of business performance measured by ROE. Given that the
independence was accepted. The relationship between impact of the three methods mentioned above has been
these methods and business performance was confirmed in confirmed in both cases, we consider these results to be
the both cases (ROE 1 and ROE 2) for three equal relevant.
methods – standardization, 5S and JIT. The fourth method Table 7
varies for each section – for ROE 1 it is the APS method,
EI Methods x ROE 2 – Residues (All Industries)
for ROE 2 it is six sigma.
For the first group of IE methods (with significant Low Average High
performance performance performance
statistically influence on the size of ROE 2 indicator – <0% - 10 % 10 – 40 % Over 40 %
standardization, 5S, JIT and 6 sigma) more detailed STANDARDIZATION
statistical analysis was carried out. The observed and is used -5.7 0.3 5.4
expected values were compared, and the individual is not used 5.7 -0.3 -5.4
5S
residues calculated (Table 7).
is used -8.1 0.8 7.3
Table 6 is not used 8.1 -0.8 -7.3
IE Methods x ROE 2 – Statistics (All Industries) JIT
is used -5.3 0.7 4.7
Asymptotic Research results (H0 is is not used 5.3 -0.7 -4.7
IE method Value
Significance confirmed/rejected) SIX SIGMA
Standardization 6.079 .048 Rejected is used -2.5 -3.6 6.1
5S 13.108 .001 Rejected is not used 2.5 3.6 -6.1
JIT 6.846 .033 Rejected
6 sigma 10.676 .005 Rejected The same analysis was processed for the last indicator
ROE 3 (calculated with EBIT). The following tables again
The analysis results for the standardization (Table 6) show results of the Pearson chi-square test of
revealed strong statistically significant dependence of this independence for all surveyed IE methods (Table 8) and
method and overall business performance measured by the the observed frequencies, calculated expected frequencies
modified ROE 2 indicator. As in the previous case of and residues levels for selected EI methods (Table 9).
ROE 1 (Table 5) is the use of this method typical especially
for high performance firms with ROE 2 over 40 % (Table 7). Table 8
A very strong relationship was also demonstrated IE Methods x ROE 3 – Statistics (All Industries)
between 5S and ROE 2 (Table 6). According to the Asymptotic Research results (H0 is
residual levels can be concluded that the use of 5S is also IE method Value
Significance confirmed/rejected)
typical for high performance firms (ROE 2 over 40 %). Standardization 14.864 .001 Rejected
Conversely, for low performance or inefficient firms MRP I 6.430 .040 Rejected
(ROE 2 less than 10 %), is the use of this method not 5S 6.095 .048 Rejected
MRP II 7.107 .029 Rejected
typical (Table 7). TQM 15.193 .001 Rejected
Very similar results as in the case of ROE 1 also apply JIT 18.369 .000 Rejected
to the JIT method in case of ROE 2. JIT has QFD 6.684 .035 Rejected
a demonstrable impact on the overall business performance SMED 6.258 .044 Rejected
measured by ROE 2. The residue levels (Table 7) shows APS 9.271 .010 Rejected
MOST 6.154 .046 Rejected
that by using this method firms achieve above average
DMAIC 7.024 .030 Rejected
levels of ROE 2 over 40 % - the use of JIT is typical for
high-performance firms. For low performance or According to Table 8, at the level of significance
inefficient firms is not the use of JIT typical. α = 0.05, the zero hypotheses of independence H 0 for
The relationship between six sigma and business standardization, MRP I, 5S, MRP II, TQM, JIT, QFD,
performance measured by the modified ROE 2 is also SMED, APS, MOST and DMAIC were rejected.
statistically significant (Table 6). Based on the residue The relationship between these methods and the business
levels (Table 7) can be stated that the use of this methods performance measured by the ROE 3 indicator is strong
is typical for high performance firms, reaching the ROE 2 statistically significant. Of these eleven methods, three are
values over 40 %. In contrast, the use of six sigma is not the same as for ROE 1 and ROE 2 (standardization, 5S and
typical in low-performing firms and medium-performing JIT). Also, the fourth methods for previous ROE indicators
firms (ROE 2 10–40%).

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(APS for ROE 1 and six sigma for ROE 2) are identical  Mechanical engineering: 51 firms
also for ROE 3.  Construction: 37 firms
For all remaining EI methods can be stated that there is  Electrotechnical: 27 firms
no statistically significant relationship between these  Automotive: 20 firms
methods and overall business performance measured by  Wood processing: 20 firms
the size of the ROE 3 indicator.  Food industry: 15 firms
The impact of standardization on business
 Plastic industry: 11 firms
performance measured by ROE 3 is statistically
 Transport and logistics: 10 firms
significant. The use of this method is based on the residual
According to Table 11 can be stated that the use of
value (Table 9) typical for high performance firms (with
both methods (standardization and 5S) is typical in
ROE 3 over 16 %).
mechanical engineering, electrotechnical industry,
The use of the 5S method is, based on the residual
automotive and plastics industry. Differences in the use of
value (Table 9), typical for high performance firms (ROE 3
these methods between different industries have been
over 16 %) and for the firms with an average performance
demonstrated and the research hypothesis H2 was rejected.
level (ROE 3 4-16 %).
Firms implementing specific IE method can achieve
According to residues levels (Table 9) for six sigma
significantly higher performance, but this do not apply
and APS method can be concluded, that the use of both
commonly in all industries.
methods is typical for high performance firms. On the
Sectoral benchmarking was performed for methods
other hand, according to the residue levels (Table 9) firms
with expected suitable frequencies for Pearson’s chi-square
with very low performance (ROE 3 less than 4 %) or
test. We did not operate with the rest of the surveyed
inefficient firms (ROE 3 less than 0 %) and firms with
methods due to non-compliance with the basic conditions
average performance (ROE 3 4–16 %) do not typically use
of this test (more than 20 % of the expected frequencies
these methods – six sigma and APS.
Table 9
were less than 5 and some expected frequencies were less
than 2). The result of test is shown in Table 10.
EI Methods x ROE 3 – Residues (All Industries) Table 10
Low Average High IE Methods x ROE 3 – Statistics (All Industries)
performance performance performance
<0% - 4 % 4 – 16 % Over 16 % IE method Value
Asymptotic Research results (H0 is
STANDARDIZATION Significance confirmed/rejected)
is used -5.6 -6.0 11.6 Standardization 26.769 .000 Rejected
is not used 5.6 6.0 -11.6 Kaizen 19.308 .006 Rejected
5S MRP I 26.034 .000 Rejected
is used -8.1 3.8 4.3 5S 27.297 .000 Rejected
is not used -8.1 -3.8 -4.3 Visualization 26.322 .000 Rejected
JIT MRP II 21.749 .003 Rejected
is used -4.8 -6.0 10.8 Poka-yoke 36.359 .000 Rejected
is not used 4.8 6.0 -10.8 JIT 10.385 .168 Confirmed
APS
is used -1.9 -4.3 6.1 At the level of significance α = 0.05, the zero
is not used 1.9 4.3 -6.1 hypothesis of independence H0 for standardization, Kaizen,
SIX SIGMA MRP I, 5S, visualization, MRP II and Poka-yoke were
is used -2.5 -3.6 6.1
is not used 2.5 3.6 -6.1
rejected. The relationship between these methods and the
type of industry in which the firm operates is statistically
As can be deduced from the previous results, the range significant. Methods are dependent on the industry in
of methods affecting ROE 1 and ROE 2 performance are which the company operates – these methods are typical in
similar, but for ROE 3 shows significant differences. some of the industries.
Possible explanation for this situation is given in the The zero hypothesis of independence H0 for JIT was
Discussion. confirmed. The use of JIT is typical in all industries. Since
only standardization and 5S represent the methods that
Sectoral Benchmarking demonstrated the relationship to business performance in
The presented results induce the question whether the the previous analyzes and at the same time has been
above applies globally in all industries in Czech Republic. proven the relationship with industry, only these two
That is why we have decided to proceed sectoral methods were selected for further detailed analysis.
benchmarking. Even for this analysis was used the Pearson’s Residuals are shown in Table 11.
Chi-square test of independence. For the purposes of this
test, the following hypotheses have been defined:
H0: There is no statistical significant correlation
between using selected IE methods and industries.
H1: There is statistical significant correlation between
using selected IE methods and industries.
For this comparison, only the sectors whose number in
our original sample (235 companies) was greater than 10
were selected (N = 191). These are the following:

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 Rastislav Rajnoha, Katerina Galova, Zoltan Rozsa. Measurement of Impact of Selected Industrial Engineering Practices…

Table 11
EI Methods x Industries – Residues
Mechanical Electrotechnical Wood Food Plastics Transport
Construction Automotive
engineering industry processing industry industry and logistics
STANDARDIZATION
is used 2.0 -7.4 3.3 7.6 -0.4 -5.1 0.8 -0.7
is not used -2.0 7.4 -3.3 -7.6 0.4 5.1 -0.8 0.7
5S
is used 7.4 -6.0 1.2 5.5 -4.5 -3.9 1.4 -1.2
is not used -7.4 6.0 -1.2 -5.5 4.5 3.9 -1.4 1.2

Discussion The second dividing whole equation will bring the

following adjustment:
The previous text also commented similarity between
results for the ROE 1 and ROE 2, and the relatively large 𝐸𝑉𝐴 = 𝐸𝐵𝐼𝑇 − 𝑖𝑛𝑡𝑒𝑟𝑒𝑠𝑡
difference between these two ROEs and ROE 3. We
believe that the main reason for this difference can be an This decomposition shows that besides the derivation
enhanced financial effect implicitly incorporated into the of interest by equity is also EVA indicator derived by
ROE 3 calculation construct itself. The tax effect can be equity. So small change of the ratio of debt and equity (or
excluded because the sample under examination was the difference in ratio of the merged firms) will result in
homogeneous and it includes only companies operating in a higher difference in their overall performance measured
the Czech Republic with the same tax rate (income tax by ROE 3 (EBIT / E). Firms with only a small share of
rate). debt (D) seem to be more efficient than with the traditional
The following decomposition of the EVA indicator ROE (EAT / E). In this way the higher ROE 3 performance
(source: Rajnoha, R., 2017, own research not published is influenced by the second order partial derivative of
yet) shows gradual adjustments and first and second equity. Up to second order partial derivative by equity
dividing by to the equity, where: show ROE 3 relatively more performed than ROE 1.
C … capital The ROE 3 indicator artificially multiplies the
D … debt financial leverage effect and consequently more IE
E…. equity methods appear to be better for higher performance
rd … cost of debt businesses. Since this indicator (EBIT / E) is used in the
re … cost of equity world, for example in the US, we used this indicator
WACC…. weight average cost of capital additionally as the third to complement our research. Even
though they are different from the other two ROEs,
𝐸𝑉𝐴 = 𝐸𝐵𝐼𝑇 − 𝑖𝑛𝑡𝑒𝑟𝑒𝑠𝑡 precisely because of the above decomposition and its
impact on ROE. In addition, we also suppose that under
𝐸𝑉𝐴 = 𝐸𝐵𝐼𝑇 − (𝐶 × 𝑊𝐴𝐶𝐶) the conditions of the Czech Republic or the Slovak
Republic, it is quite typical to finance companies in the
𝐷 𝐸 form of loans from their owners.
𝐸𝑉𝐴 = 𝐸𝐵𝐼𝑇 − [𝐶 × (𝑟𝑑 × + 𝑟𝑒 × )]
𝐶 𝐶
Conclusions
1
𝐸𝑉𝐴 = 𝐸𝐵𝐼𝑇 − [𝐶 × (𝑟𝑑 × 𝐷 + 𝑟𝑒 × 𝐸)] In this study, we set up to investigate the impact using
𝐶
the specific IE methods on overall business performance.
𝐸𝑉𝐴 + (𝑟𝑑 × 𝐷 + 𝑟𝑒 × 𝐸) = 𝐸𝐵𝐼𝑇 The first step was to determine the extent of use of
individual IE methods in the Czech Republic. The most
commonly used IE methods in the world include e.g. 5S,
Whole equation can be divided fraction 1 / E. After visualization, standardization, JIT or Poka Yoke (Bhasin,
that we get: 2012; Glass et al., 2016; Eswaramoorthi et al., 2011). In
our research, we achieved practically the same results, as
𝐸𝑉𝐴 𝑟𝑑 × 𝐷 + 𝑟𝑒 × 𝐸 𝐸𝐵𝐼𝑇 all the above-mentioned methods were among the ten most
+ =
𝑒𝑞𝑢𝑖𝑡𝑦 𝑒𝑞𝑢𝑖𝑡𝑦 𝑒𝑞𝑢𝑖𝑡𝑦 frequently used methods.
Based on the results presented in the previous text, the
The relationship between EVA and E represents the
following conclusions were formulated:
operational profitability of own capital (Equity) calculated
H1: To confirm or reject this research hypothesis, it
from the EVA. The second fraction in previous equation
was necessary to examine the verity of this statement for
represents the financial leverage effect. And on the right
each surveyed method. Based on previously described
side of equation we get our ROE 3 indicator measured with
results, we can say that our assumption that the use of
EBIT.
specific IE method causes significantly higher overall
𝐸𝑉𝐴 𝐸𝐵𝐼𝑇 𝑖𝑛𝑡𝑒𝑟𝑒𝑠𝑡 business performance do not apply generally for all IE
= − methods. The statistically significant relationship between
𝑒𝑞𝑢𝑖𝑡𝑦 𝑒𝑞𝑢𝑖𝑡𝑦 𝑒𝑞𝑢𝑖𝑡𝑦 specific IE method and the higher performance measured

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 Inzinerine Ekonomika-Engineering Economics, 2018, 29(2), 176–187

by ROE 1 or ROE 2 was observed only for standardization, the company (i.e. firms using these methods achieve higher
5S, JIT, APS and six sigma. The research essentially performance) applies only in mechanical engineering,
confirmed the prevailing view that the selected IE methods electrotechnical, automotive and plastics industry where
positively affect business performance and competitiveness the use of these methods is typical.
(Huarng, 2002; Fullerton & Wempe, 2009; Yang et al., We also realize, of course, that other indicators for
2011; Nawanir et al., 2012; Danese et al., 2012; Todorovic measuring total corporate performance, such as ROA
& Cupic, 2017). Although the studies mentioned above (Return on Assets) or ROS (Return on Sales), could be
(including ours) focus on the overall performance only used in our research. However, we think that ROA is rather
with different indicators, none of the above used the ROE an imaginary indicator, from which it is hardly possible to
indicator. infer without detailed knowledge of the company and the
This finding leads to the question of its general way of its financing (especially in the Czech Republic, it is
validity in all industries in the Czech Republic: often the financing of the company in the form of a loan
H2: Due to low frequencies for some industries, we from its owners). On the other side ROE indicator can be
choose for sectoral benchmarking only following used for performance benchmarking (i.e. comparison with
industries: Mechanical engineering, Construction, competitors in the same industry) without any problems.
Electrotechnical, Automotive, Wood processing, Food For the future, however, we are planning to expand our
industry, Plastic industry and Transport and logistics. research of IE methods by other alternative indicators as
Based on the analyzes we can state that the impact of well as other V4 countries such as Slovak Republic or
standardization and the 5S method on the performance of Poland.

Acknowledgements
Authors are thankful to the Internal Grant Agency of FaME TBU No. IGA/FaME/2017/015 “Impact of selected industrial
engineering methods on the overall business performance and process efficiency” for financial support to carry out this
research. This paper is the partial result of the GAAA - Grantova agentura Akademicke aliance Grant project No. GAAA
3_2/2016 – “Strategic business performance measurement and management and its comparison in Czech and Slovak
companies”.

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The article has been reviewed.

Received in January, 2018; accepted in April, 2018.

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